After 150% rally in last 1 year, this smallcap is celebrating early Diwali

Air-conditioner (AC) manufacturers just got a Diwali gift after the government decided to ban import of finished ACs. Analysts said the move, aimed at boosting domestic production, is undoubtedly going to benefit contract manufacturer Amber Enterprises, as the company serves nine out of 10 AC brands in India.

There are expectations that refilling of inventory in the channel amid festive season and addition of new clients due to the ban would drive revenues for Amber. At present, Blue Star, LG, Hitachi, Godrej and Daikin are among the major clients of the company.

Shares of the company have already jumped over 150 per cent in last one year. The scrip hit an all-time high of Rs 2,406 on October 19 against Rs 936 on October 18 last year.

Brokerage ICICI Securities said the contract manufacturer will be the biggest beneficiary of the government’s flagship Atmanirbhar scheme. The recent ban on the import of finished RAC (residential AC) is likely to create multi-fold business opportunities for Amber.

At present, India imports around 1.6 million units (worth about Rs 3,500 crore) of finished RACs, which is around 22 per cent of total volume sold in the country in FY20.

“Amber being a market leader in the original equipment manufacturer and original design manufacturer industry with market share of around 70 per cent is likely to get significant business opportunities from Q4FY21 onwards (considering the immediate restriction on imports),” ICICI Securities said, It has a price target at Rs 2,600 on the stock.

AK Prabhakar, Head of Research at IDBI Capital Markets, said the government move to ban AC would benefit Amber. “However, I don’t see much upside in the stock price right now after the recent runup,” he said.

In terms of valuation, the stock is definitely not in the comfort zone. The price-to-earnings (P/E) multiple of the stock stood at 145 times on October 19, 205 per cent higher against the average of 47 times since its listing in January 2018.

Analysts have raised Amber’s earnings forecast for FY22. Earlier, the company had reported strong revenue and earnings growth of around 36 per cent and 62 per cent CAGR in FY18-20 supported by 26 per cent CAGR RAC volume growth during this period.

ICICI Securities has upgraded Amber’s revenue and earnings estimates by 13 per cent and 19 per cent, respectively, for FY22E.

Dolat Capital believes Amber’s business model is likely to keep growing in India. “RAC players prefer to outsource manufacturing due to the lower cost on the back of cheaper contract labour, economy of scale with the contract manufacturers and avoidance of the long wait period for greenfield projects to manufacture the same.”

The brokerage in a October 8 report said Amber is a structural story, but said it would recommend the stock only after a price correction.